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Case Studies

BP    |    British American Tobacco    |    Bank Rakyat    |    Unilever

 

 
 
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Key terms

Annual Value Generated (AVG): Util's new bottom line metric to help investors better understand company performance. AVG can be treated in much the same way as EBITDA, or net profit - how effectively a company translates its actions into value. 

Annual Value Generated / Revenue Margin: A key metric, AVG/Revenue articulates how effectively a company generates value, relative to a unit of revenue. AVG/Revenue margin compares the performance of companies with different top-line revenue. 

Stakeholders: The main agents that interact directly with the company. Every company engages with Util's eight core stakeholders which can be split into operational (Suppliers, Community, Environment, Creditors, Employees) and output (Government, Shareholders, Customers). 

Value: Any quantifiable non-financial or financial activity, positive or negative, received by a stakeholder, as a direct result of an engagement with the company in question. 

 
 
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BP

MSCI rating AA
Thomson Retuers ESG score 86/100
CSR Hub score 56/100
Util Annual Value Generated U(78,828)m
AVG / Revenue margin n.a.
EV/EBITDA 7.0x
EV/Value n.a.

BP, the oil major, tops a number of ESG providers' best-in-class ratings due to a combination of excellent governance policies, employee benefits, management quality and human rights policies. Importantly, ESG providers all but ignore the negative impact BP's products and services have on its customers. BP destroys value not only through the energy intensive extraction and refinement process, but also because they are selling a product to consumers that will further contribute negatively to SDG #13, Climate Action. We rank BP in the bottom 10% of our universe, due to its outsized negative environmental impact.

Util quantifies the holistic value a company creates, across stakeholders and Sustainable Development Goals. Instead of a rating or a /100 score, Util delivers a new company bottom line (Annual Value Generated), which can be compared across time and peer group, monitored by investors and reported in line with reporting periods. In this case, BP destroys almost U79bn value, across its stakeholder groups. 

The below chart provides insight into where BP generates and destroys value, across SDGs and Stakeholders. 

The chart shows the value that BP generates, and destroys, across seven stakeholders. The majority of BP's value destruction relates to its environmental outputs and end products. Its environmental outputs include significant Scope 1 & 2 emissions, which are translated into natural capital costs, using a social cost of carbon metric. BP destroys value for customers, aligned to SDG #6, Clean and Affordable Energy and SDG #13, Climate Action. Util's data models align BP's revenue to each of the 17 SDGs, assigning a positive or negative weighting, depending on the classification and type of products sold.

 
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British American Tobacco

DJSI Top ranked
Thomson Retuers ESG score 61/100
CSR Hub score 56/100
Util Annual Value Generated U3,854m
AVG / Revenue margin 14%
EV/EBITDA 15.1x
EV/Value 31x

Perhaps the most famous example of the mis-match between ESG ratings and impact, British American Tobacco scores highly across all ESG ratings, topping the Dow Jones Sustainability Index. Many ESG funds negative screen, excluding all tobacco stocks from their portfolios. However, Util's analysis is more nuanced: British American Tobacco destroys value for its customers, aligned to SDG #3, Good Health and Well-being, but creates significant value across other stakeholder groups. Util's analysis moves beyond the limited ESG ratings approach and further than negative screening, to provide a nuanced representation of holistic company value.

Util quantifies the holistic value a company creates, across stakeholders and Sustainable Development Goals. Instead of a rating or a /100 score, Util discovers a new company bottom line (Annual Value Generated), which can be compared across time and peer group, monitored by investors and reported in line with reporting periods. British American Tobacco has an EV/Value ratio of 31x, higher than its EV/EBITDA and higher than any of its consumer, peers, suggesting an overvalued stock.

The below chart provides insight into where British American Tobacco generates and destroys value, across its stakeholder groups. 

British American Tobacco generates value for its Employees, through generous salaries, low injury rates, moderate management diversity and funds dedicated to training and development investment. The company also generates value for its Shareholder stakeholders through dividends and share buybacks. British American Tobacco destroys significant value for its Customer stakeholders, assigned to Sustainable Development Goal #3, Good Health and Well-being. Customer value is determined based on how effectively a company translates its revenue into positive or negative value, across the 17 Sustainable Development Goals. British American Tobacco's revenue translates to significant negative value creation for its customer stakeholders.

 
 
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Bank Rakyat

MSCI rating A
Thomson Retuers ESG score 77/100
CSR Hub score 69/100
Util Annual Value Generated U4,830m
AVG / Revenue margin 71%
EV/EBITDA 7.3x
EV/Value 5.2x

Bank Rakyat is a large Indonesian bank with a focus on microfinance and small business loans. Util's analysis articulates the key areas of Bank Rakyat's value creation, with the majority of its value coming from the products and services it provides for its customers. Traditional ESG analysis aligns Bank Rakyat to a narrow range of impact areas (SDG #1 No Poverty, SDG #10 Reduced Inequalities). Util's analysis uses machine learning and natural language processing to analyse both Bank Rakyat's products and its end customers to assign positive value creation across all 17 UN Sustainable Development Goals. 

Util quantifies the holistic value a company creates, across stakeholders and Sustainable Development Goals. Instead of a rating or a /100 score, Util has developed a new company bottom line (AVG), which can be compared across time and peer group, monitored by investors and reported in line with reporting periods. Bank Rakyat generated U4,830m value across its stakeholder groups, over the last annual reporting period. It’s 5.2x EV/Value rank is average, relative to its Financial Services peers. 

The below chart provides insight into where Bank Rakyat generates and destroys value, across the 17 UN Sustainable Development Goals.

Bank Rakyat provides most value for Sustainable Development Goal #8, Decent Work and Economic Growth. Multiple stakeholders, including Employees, Suppliers, Customers and Shareholders contribute to SDG#8, resulting in significant value generation. Conversely, Bank Rakyat destroys value for SDG #5, Gender Equality, resulting from significant over-representation of male employees at senior and board level. Because Util analyse both Bank Rakyat products and its end users, value is distributed across SDGs, including #2, Zero Hunger, due to the Bank’s large agricultural lending division.

 
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Unilever

MSCI rating A
Thomson Retuers ESG score 77/100
CSR Hub score 69/100
Util Annual Value Generated U26,996m
AVG / Revenue margin 42%
EV/EBITDA 14.0x
EV/Value 6.1x

Util’s analysis aligns closely to ESG rating providers regarding industry leaders. Unilever creates value across five out of six assessed stakeholders and for a number of SDGs. Unilever generates U27bn of Annual Value Generated, at a 42% Value/Revenue margin, placing it in the top quartile of FTSE 100 companies, based on effectiveness of value creation. Util’s analysis can be used to identify undervalued companies: Unilever’s EV/Value is at 6.1x, the lowest of its industry peer group.

The below chart provides insight into where Unilever generates and destroys value, across stakeholders and Sustainable Development Goals.

Unilever generates significant value across its Employee, Shareholder and Government stakeholders. The majority of Unilever’s value is generated through its relationship with its Customer stakeholders. Unilever produces products that are aligned positively to a number of Sustainable Development Goals, and are sold in countries where the need for these products is significant, increasing the value relationship between product and end customer.

The majority of Unilever’s value creation is aligned to SDG #8, Decent Work and Economic Growth. Unilever’s diverse range of products and services produce value across the majority of SDGs, with a significant value creation aligned to SDG #2, Zero Hunger, and SDG #12, Responsible Production and Consumption. Due to moderate Scope 1 & 2 Carbon emissions, Unilever destroys value for SDG #13, Climate Action.